JIM COOMBS: Lets have some real banking competition.

The banks still haven’t got it. They charge $6 a month for doing nothing, theft or fraud, both crimes. But government and their appointed (neoliberal economics graduates) regulators, do nothing about it. Make the Reserve Bank of Australia the Peoples Bank…again.

“Tut, Tut !” maybe, but what about punishment for the crime. Just recall that a social security recipient who, often inadvertently, fails to report excess payment, is charged essentially with theft and penalised by loss of benefit, fines and sometimes imprisonment, for a few thousand dollars. The Bankers misappropriating millions are never brought to book. But so long as the “regulators” believe in “the market” as a sufficient regulatory device, charging “what the market will bear”, i.e. how much can we get away with, will satisfy them. Blow the social, and dare one say, the true economic, cost. Kenneth Hayne might well wonder, “Was there NO regulatory supervision ?” The “commercial in confidence” excuse for not justifying pricing and charging (when the oligopoly tacitly conspire to charge at the same inflated rates) needs to be seen for the nonsense that it is, and disclosure of cost structures should be mandatory, or the licence to operate revoked.

My bank, in the midst of the howls of rage at their overcharging and so on, has introduced a $6 a month account keeping charge for a dormant account opened for my daughter 26 years ago and which has been inactive for over 20 years. Try to close it and bureaucratic barriers are placed in your path. No amount of slick expensive TV advertising their “good guy” community minded doings can replace the disgust people feel at what they do to us. How about a reduction in charges and genuine transparency ? Remember when you trusted tour local bank manager ?

But how about this. When you transfer funds from one bank to another it takes over 24 hours for it to go from A to B. It does not appear in either account. Enquiries of the Reserve Bank, and APRA give the answer that it takes that much time. In the age of nanosecond share transactions that rings hollow. When asked if the bank asked to transfer simply held the money and played the money market, nobody seemed to know. One might suspect, at least. But worst, the “regulators” think it is none of their business, let alone ours, even though it is our money that they may well be gambling, while denying possession. So how about we get a share of the profits?

So, if you are a bank customer, as opposed to shareholder, you are most likely being dudded, charged for non-existent services, and treated with contempt. The smaller you are the heavier the burden: they much prefer to deal with rich folk, and give them the best deals. They pay their staff to push the unwary into arrangements which favour someone else. If we had a government who governed for the benefit of all, practices which discriminated against the weak in favour of the rich/strong would be made offences punishable at law. Instead, we have governments who seem to believe that if it is called “business” it is not to be interfered with. I hope Justice Hayne has an opportunity to raise an eyebrow at that.

Well, of course the ideology drones on: “trickle down” economics, has “Business”, not able to survive in the competitive market it espouses, demanding a huge gift of “tax relief” to get them to provide jobs for the unemployed. None will sign the pledge to do so, the magic of the market will do it. The RBA asks for increases in wages, well “We can only pay what the market will bear” , i.e., how little can we get away with paying, and an unfortunately wrongly named Fair Work Ombudsman actually spouts “market forces” arguments, instead of fairness, justice and sane income redistribution. The ideology stretches that far, even though it is nonsense. Foreign students and backpackers are exploited, working for slave wages, fearful of Peter Dutton. Tenure, mandatory holidays, sick leave, safe working conditions have been eroded by John Howard’s union hating legislation, and “regulators” think that’s OK, because of the “market”.

The Productivity Commission (especially under Friedmanite Hilmer) defined productivity as getting more out of workers for the same or less pay. What about the productivity of transferring industry profits from the workforce to shareholders ? APRA has steadfastly avoided investigating banking practices. Is it too much to expect to have a government which regulates businesses to protect, let alone advance the interests of the people generally, and the poor and the weak in particular. Roll on, the Banking Royal Commission !

The elegant simple answer to the bank misbehaviour problem is the Gruen Bank, make the RBA the People’s Bank and show the bastards what competition really is.

Jim Coombs is a nearly retired magistrate and a pre-Friedman economist.

7 Responses to JIM COOMBS: Lets have some real banking competition.

There was a bank like that in NSW: the NSW State Bank. It was cannibalised to form the Commonwealth Trading, and Savings Bank, by the Scullin Govt. A forfeit forced by an alleged state debt, the discharge of the Premier. The allegation was made by an English banker brought in to review the matter. The PM believed it. The money Lang paid was found by National Westminster Bank in the coffers of the Southampton Bank in early 1971, under the name of “The State of NSW”. The odd law that made all that possible was used again in 1975. Both the Law and Banks are thieves, sometimes.

Jim one can but agree. Regrettably the RC will probably not tackle the outlandish price gouging that is interest rates on and between financial products such as credit cards and other credit. As we know there is a multi-tiered market which means ‘preferred customers’ are given different rates, the argument is that the interest charged is a risk marker, this also is obfuscation for deliberately gouging large amounts of money from those less capable of paying, the larger customer base, in short positive discrimination.

As for bank transfer delays etc, I suspect the truth is somewhere between what the RBA and APRA say about time delays and actually more arcane but more alarming. Banking computer systems are hideously complex beasts that have to process millions of electronic transactions minute by minute those transactions have to be done between thousands and thousands of different terminals constantly. While I am sure there is some ‘smoothing’of the various money ponds that represent monetary liquidity and the money market (other banks here and overseas) there are also issues of fraud and transaction bona-fides that have to be taken care of constantly as demands are made of funds by non bank organisations as transactions occur, locally and overseas. This all takes time but it really tells me that their computer systems and inter connectivity with other organisations is problematic and has to be managed very carefully indeed because it is an exceedingly complex and hence fragile system and any customer can relate as you or I could their probably daily experience of ‘íssues’ confirming that these systems are constantly plagued by interruptions and other similar electronic problems. In short they are prone to failure and error, witness the debacle of non reporting by the CBA to the CTRA as a case in point. Every major bank in this country has severely under invested in it’s IT capacity and repeatedly rationalised staffing etc on the basis of internal cost cutting. Probably going for an NBN on the cheap was not such a good idea either. Its all connected.

The banks are allowed the current light (very light!) hand of government regulation on the assumption of an informed marketplace. In practice and not surprisingly, most of the market place has not been sufficiently informed to be able to deduce rampant malpractice. The reality is that the banks’ products and practices demand a sophisticated level of financial expertise, a level enjoyed by very few. And then there’s the exorbitant salaries they pay enabled by those products and practices. That all makes a classic case for effective government intervention. A People’s Bank would go a long way to ensuring informed competition and the protection of consumers in a complex marketplace while minimising regulatory controls. Good piece, Jim!

Commercial banks are a racket. The current review has wasted more time proving what most Australians learned soon after Bob Menzies sold off the CBA in 1936, and the free golden tin box where I kept my pennies destroyed any thusiasm I still had to become a rich banker. Australia needs a new people’s bank that retains the honesty and the name Commonwealth Bank of Australia.

That’s one solution. Meanwhile it might be easier to transfer all accounts to a Credit Union – which charges no fees, pays a higher interest on savings while charging a lower rate on loans. Thanks to ATMs and internet banking there’s now no need to have a branch nearby.

Hilmer was never chair of the PC and the PC does not define productivity in terms of pay but according to the standard economic definition of the ratio of real inputs to real outputs.

I agree it’s fun to watch the muckraking in the Royal Commission, but a decent government inquiry – which as you suggest might not be necessary if existing government bodies were more assiduous (though ASIC seems a better body than APRA for overseeing the kinds of outrages that are emerging from the Royal Commission). But if we did need an inquiry one could have been done for less than $1 million rather than the legal free for all of a Royal Commission the full costs of which will probably be around a quarter to a half a billion dollars if all the legal costs are taken into account – that’s to people whose charge out rates vary from around $350 to $1,500 an hour!